15 Dearing (12/08 amended)

(a)

27 mins

On 1 October 20X5 Dearing acquired a machine under the following terms.

Hours
Manufacturer's base price
Trade discount (applying to base price only)
Early settlement discount taken (on the payable amount of the base cost
only)
Freight charges
Electrical installation cost
Staff training in use of machine
Pre-production testing
Purchase of a three-year maintenance contract
Estimated residual value
Estimated life in machine hours
Hours used year ended 30 September 20X6
year ended 30 September 20X7
year ended 30 September 20X8 (see below)

$
1,050,000
20%
5%
30,000
28,000
40,000
22,000
60,000
20,000

6,000
1,200
1,800
850

On 1 October 20X7 Dearing decided to upgrade the machine by adding new components at a cost of
$200,000. This upgrade led to a reduction in the production time per unit of the goods being manufactured
using the machine. The upgrade also increased the estimated remaining life of the machine at 1 October
20X7 to 4,500 machine hours and its estimated residual value was revised to $40,000.
Required
Prepare extracts from the statement of profit or loss and statement of financial position for the above
machine for each of the three years to 30 September 20X8.
(10 marks)
(b)

Dearing is building a new warehouse. The directors are aware that in accordance with IAS 23 Borrowing
costs certain borrowing costs have to be capitalised.
Required
Explain the circumstances when, and the amount at which, borrowing costs should be capitalised in
accordance with IAS 23.
(5 marks)
(Total = 15 marks)

16 Flightline (6/09 amended)

27 mins

(a)

Explain what is meant by a 'complex' non-current asset and explain briefly how IAS 16 requires expenditure
on complex non-current assets to be accounted for.
(5 marks)

(b)

Flightline is an airline which treats its aircraft as complex non-current assets. The cost and other details of
one of its aircraft are:
$'000
Estimated life
Exterior structure purchase date 1 April 20W5*
120,000
20 years
Interior cabin fittings replaced 1 April 20X5
25,000
5 years
Engines (2 at $9 million each) replaced 1 April 20X5
18,000
36,000 flying hours
*Ten years before 20X5
No residual values are attributed to any of the component parts.
At 1 April 20X8 the aircraft log showed it had flown 10,800 hours since 1 April 20X5. In the year ended
31 March 20X9, the aircraft flew for 1,200 hours for the six months to 30 September 20X8 and a further
1,000 hours in the six months to 31 March 20X9.

18

Questions

On 1 October 20X8 the aircraft suffered a 'bird strike' accident which damaged one of the engines beyond
repair. This was replaced by a new engine with a life of 36,000 hours at cost of $10.8 million. The other
engine was also damaged, but was repaired at a cost of $3 million; however, its remaining estimated life was
shortened to 15,000 hours. The accident also caused cosmetic damage to the exterior of the aircraft which
required repainting at a cost of $2 million. As the aircraft was out of service for some weeks due to the
accident, Flightline took the opportunity to upgrade its cabin facilities at a cost of $4.5 million. This did not
increase the estimated remaining life of the cabin fittings, but the improved facilities enabled Flightline to
substantially increase the air fares on this aircraft
Required
Calculate the charges to profit or loss in respect of the aircraft for the year ended 31 March 20X9 and its
carrying amount in the statement of financial position as at that date.
Note. The post accident changes are deemed effective from 1 October 20X8.

(10 marks)
(Total = 15 marks)

Questions

19